Toward Alternative Programs for Financial Stability : Digital Currency and Financial Network Model

The purpose of the article is to reveal the essence and features of the introduction of digital currency of central banks and their impact on the conditions of monetary policy, financial stability, as well as institutional transformations in the development of national banking systems. The study is based on an analysis of projects of issuance and use of digital currencies of the ECB and central banks of leading countries, as well as the results of pilot projects of the National Bank of China on the use of the digital yuan and NBU on the e-hryvnia circulation. It is proved that digital currency of the central bank should be considered as a new dematerialized form of national currency in addition to cash and non-cash forms. Particular attention is paid to the study of the impact of the use of digital currency by central banks on the main parameters of economic policy. The main directions of potential influence of digital currency use on transformation of mechanisms of realization of monetary, budgetary and tax, macroprudential policy, maintenance of financial stability, activization of action of channels of the monetary transmission mechanism, and also on reforming of system of the state financial monitoring and bank supervision are substantiated. It is determined that one of the consequences of the use of digital currency will be the ability to ensure full control over all monetary transactions, which will help reduce the shadow economy and corruption. Structural and logical schemes of centralized and decentralized models of issuance and circulation of digital currency of central bank have been developed, directions of changes in the structure and functions of commercial and central banks, as well as in the structure of the financial and credit system in general have been substantiated.

Download Full-text

Current Development Trends in the Digital Currency Market

Economics and Management ◽

10.35854/1998-1627-2021-7-504-511 ◽

2021 ◽

Vol 27 (7) ◽

pp. 504-511

Author(s):

E. A. Sintsova ◽

E. A. Vitsko

Keyword(s):

Financial Stability ◽

Econometric Modeling ◽

Modeling Tools ◽

Digital Currency ◽

Currency Market ◽

Russian Economy ◽

Current Trends ◽

General Scientific ◽

Modern Context ◽

Current Stage

Aim. The presented study aims to analyze the development of the digital currency market, investigate trends for expanding the use of its tools, identify the peculiarities of the current stage of digital currency use, and consider the mechanism of introducing central bank digital currencies (CBDCs).Tasks. The authors specify the role and content of the digital currency market and its tools in the modern Russian economy; examine the formation and development of the cryptocurrency market from the perspective of introducing the “digital ruble”; identify regulatory prerequisites that hinder the development of the digital currency market; describe current trends and the mechanism of organizing the introduction of CBDCs.Methods. This article reflects a comprehensive approach to assessing the effectiveness of the use of digital currency market tools based on the use of economic-statistical and general scientific dialectical methods as well as the laws and principles of formal logic. The conducted studies and recommendations are based on statistics provided by CoinMarketCap. In particular, the methodological basis includes econometric modeling tools used to assess the cryptocurrency market in order to identify its characteristic traits and features.Results. Under modern conditions, the digital currency market is considered to be one of the main transformational elements of the digital economy. The authors focus on the prerequisites for the development and implementation of the domestic digital currency as an instrument of the national monetary policy and for ensuring the financial stability of the economy as a whole. This hypothesis is confirmed by the analysis and study of the global economic situation in the international digital currency market as well as the peculiarities of the functioning of its key components.Conclusions. In the modern context, it is important to have a theoretical and practical understanding of the conditions for the functioning of the digital currency market in the national economy and to find a comprehensive solution to issues associated with expanding the use of its tools for the development of the payment system and the formation of a favorable competitive environment.

Download Full-text

CENTRAL BANK DIGITAL CURRENCY: ECONOMIC AND LEGAL CHARACTERISTICS

Legal horizons ◽

10.21272/legalhorizons.2019.i19.p94 ◽

2019 ◽

pp. 94-100

Author(s):

T.S. Hudima ◽

V.A. Ustymenko

Keyword(s):

Monetary Policy ◽

Central Bank ◽

Financial Stability ◽

Banking System ◽

Legal Framework ◽

Central Banks ◽

Digital Currency ◽

Business Entities ◽

The Right ◽

Article 5

The article is devoted to identifying the peculiarities of the central bank digital currency (CBDC), explaining their impact on the monetary policy of the state, and identifying the prospects for the transformation of domestic banking legislation in connection with the implementation of the CBDC. It is noted that the scope of competence of the Central Bank and the legal basis for the issuance of the CBDC will depend on the economic and legal features of the digital currency, the degree of its impact on the monetary policy, the financial stability of the country’s economy and so on. In the process of forming the appropriate legal field and defining the conceptual apparatus in the sphere of emission and circulation of the CBDC, the peculiarities of the use of the latter in economic transactions and the specific functions not inherent in ordinary means of payment should be taken. СBDC initiatives will help: 1) progressively narrow the banking system at the level of the Central Banks (such as the Chicago Plan) by allowing individuals and businesses to deposit directly into the accounts of the Central Banks; 2) increasing confidence of economic entities and individuals in the financial system; 3) strengthening the financial stability of the economy (both domestically and globally). Granting business entities or individuals the right to store digital money directly with the Central Bank can give rise to two main directions of influence on monetary policy: first, to strengthen its transmission mechanism; secondly, lead to banks being disrupted. This may lead to some legal issues regarding (1) the NBU’s area of competence; (2) the constitutional foundations of the legal economic order (Article 5 of the ECU). In particular, it cannot be ruled out that centralization of the production, servicing, and management of the СBDC turnover may violate the principles of competition in business activities, prevent abuse of monopoly position in the market, etc. Keywords: monetary policy, central bank digital currency, financial stability, competence, legal framework, economic operations, issue.

Download Full-text

Casting Light on Central Bank Digital Currency

Cryptoassets ◽

10.1093/oso/9780190077310.003.0012 ◽

2019 ◽

pp. 307-340 ◽

Cited By ~ 1

Author(s):

Tommaso Mancini-Griffoli ◽

Maria Soledad Martinez Peria ◽

Itai Agur ◽

Anil Ari ◽

John Kiff ◽

...

Keyword(s):

Central Bank ◽

Financial Stability ◽

Central Banks ◽

End User ◽

Staff Members ◽

Fiat Money ◽

Digital Currency ◽

Policy Goals ◽

Simple Question ◽

Monetary Policy Effectiveness

Several central banks have begun actively investigating the possibility of issuing central bank digital currency (CBDC). This new central bank liability would be a widely accessible digital form of fiat money, intended as legal tender. This chapter aims to answer a simple question: Does CBDC offer benefits? On the demand side, would it satisfy end user needs better than other forms of money? And on the supply side, would issuing CBDC allow central banks to more effectively satisfy public policy goals, including financial inclusion, operational efficiency, financial stability, monetary policy effectiveness, and financial integrity? In short, is CBDC a desirable form of money given existing and rapidly evolving alternatives? The chapter includes a summary of pilot projects and studies from central banks exploring the possibility of issuing CBDC. The analysis is based on publicly issued materials and discussions with staff members at central banks and technology providers around the world.

Download Full-text

Bank Networks and Systemic Risk: Evidence from the National Banking Acts

The American Economic Review ◽

10.1257/aer.20161661 ◽

2019 ◽

Vol 109 (9) ◽

pp. 3125-3161 ◽

Cited By ~ 7

Author(s):

Haelim Anderson ◽

Mark Paddrik ◽

Jessie Jiaxu Wang

Keyword(s):

Network Model ◽

Network Structure ◽

Systemic Risk ◽

Financial Stability ◽

Balance Sheets ◽

Unique Data ◽

Financial Center ◽

Bank Balance Sheets ◽

The City ◽

Systemically Important Banks

The National Banking Acts (NBAs) of 1863–1864 established rules governing the amounts and locations of interbank deposits, thereby reshaping the bank networks. Using unique data on bank balance sheets and detailed interbank deposits in 1862 and 1867 in Pennsylvania, we study how the NBAs changed the network structure and quantify the effect on financial stability in an interbank network model. We find that the NBAs induced a concentration of interbank deposits at both the city and bank levels, creating systemically important banks. Although the concentration facilitated diversification, contagion would have become more likely when financial center banks faced large shocks. (JEL E44, G01, G21, G28, L14, N21)

Download Full-text

Central Bank digital currencies

Bankarstvo ◽

10.5937/bankarstvo2103109m ◽

2021 ◽

Vol 50 (3) ◽

pp. 109-139

Author(s):

Vesna Martin

Keyword(s):

Central Bank ◽

Financial Stability ◽

Central Banks ◽

Modern World ◽

Digital Form ◽

Technological Transformation ◽

Advantages And Disadvantages ◽

Digital Currency ◽

The Social

Central Bank digital currencies are a digital challenge to the international monetary and financial system. Since the development of cryptocurrency, such as bitcoin, the modern world has faced the possibility of digital technological transformation and providing a digital form of payment for the economy and the household. In addition, the announcement of a digital currency that would have a global reach, such as the Libre issued by the social network Facebook, raised questions about legal and regulatory safeguards, financial stability, and the role of the digital currency in society. All this influenced the leading central banks to recognize the need to conduct a detailed analysis of the possibilities of issuing digital currency of the central bank, which would be a supplement to the cash and non-cash form of payment. These analyzes include considering the advantages and disadvantages of that currency, determining its design and technological solution, as well as the necessary regulatory adjustments. In the coming period, we will witness a technological transformation in the operations of central banks, which, as before, should take care of preserving price and financial stability as its main goals, but also respond to new challenges of digital business.

Download Full-text

Wealth Inequality, Network Topology and Financial Instability

Journal of Income Distribution ◽

10.25071/1874-6322.40445 ◽

2021 ◽

Author(s):

Thomas Hauner

Keyword(s):

Financial Stability ◽

Random Network ◽

Wealth Distribution ◽

Wealth Inequality ◽

Financial Assets ◽

Financial Network ◽

Random Shock ◽

Income Shock ◽

Network Simulations ◽

Individual Asset

This paper asks if two, otherwise identical, economies were distinguished only by their distributions of wealth, are they equally stable in response to a random shock? A theoretical financial network model is proposed to understand the relationship between wealth inequality and financial crises. In a financial network, financial assets link individual asset and liability holders to form a web of economic connections. The total connectivity of an individual is described by their degree, and the overall distribution of connections in the network is imposed through a degree distribution--equivalent to the wealth distribution as incoming connections represent assets and outgoing connections liabilities. A network's topology varies with the level of wealth inequality and total wealth and together, simulations show, they determine network contagion in the event of a random negative income shock to some individual. Random network simulations, whereby each financial connection is randomly placed, reveal that increasing wealth inequality makes a wealthy network less stable--as measured by the share of individuals failing financially or the decline in financial asset values. These results suggest a unique architectural role for accumulated assets and their distribution in macro-financial stability.

Download Full-text

Central Bank Digital Currency and Financial Stability in a Dual Banking System

Advances in Finance, Accounting, and Economics - Impact of Financial Technology (FinTech) on Islamic Finance and Financial Stability ◽

10.4018/978-1-7998-0039-2.ch012 ◽

2020 ◽

pp. 233-252

Author(s):

Hichem Hamza ◽

Khoutem Ben Jedidia

Keyword(s):

Interest Rate ◽

Central Bank ◽

Financial Stability ◽

Banking System ◽

Central Banks ◽

Peer To Peer ◽

Payment Mechanism ◽

Digital Currency ◽

Pros And Cons ◽

Open Question

The digitization of payment and the development of private digital currencies have constrained central banks to examine the issuance of their own central bank digital currency (CBDC) in order to face the competition of the new peer-to-peer payment system and the decline of cash use. This chapter addresses the topic of CBDC and places the discussion within the context of dual banking intermediation and financial stability. The design of CBDC in term of accessibility, anonymity, interest rate, and payment mechanism depends on the cryptocurrency use and money characteristics regarding the use of cash and deposit. The CBDC Sharia compliant, free of interest or PLS-based, fulfilling money value stability might be a solution. The effects of CBDC on banking intermediation and financial stability depend importantly on the CBDC design and switch significance of banks deposit to CBDC but remain an open question given the pros and cons arguments. In a dual banking system, Islamic banks could limit the disintermediation effect and maintain financial stability under Sharia compliance.

Download Full-text

The multiplex nature of global financial contagions

Applied Network Science ◽

10.1007/s41109-020-00301-2 ◽

2020 ◽

Vol 5 (1) ◽

Author(s):

R. Maria del Rio-Chanona ◽

Yevgeniya Korniyenko ◽

Manasa Patnam ◽

Mason A. Porter

Keyword(s):

Financial Distress ◽

Financial Stability ◽

Global Financial Crisis ◽

Threshold Model ◽

Financial Assets ◽

Financial Network ◽

Node Importance ◽

Multiplex Network ◽

Cross Country ◽

Using Data

Abstract As illustrated by the 2008 global financial crisis, the financial distress of one country can trigger financial distress in other countries. We examine the problem of identifying such “systemically important” countries (i.e., countries whose financial distress can trigger further distress), which is important for assessing global financial stability. Using data on bilateral financial positions that are split by asset type, we build a multiplex global financial network in which nodes represent countries, edges encode cross-country financial assets of various types, and layers represent asset types. We examine the temporal evolution of a measure of node importance known as MultiRank centrality, and we find that several major European countries decrease in rank and that several major Asian countries increase in rank since 2008. We then develop a multiplex threshold model of financial contagions in which a shock can propagate either within a layer or between layers. We find that the number of systemically important countries can be twice as large when we take into account the heterogeneity of financial exposures (i.e., when using a multiplex network) than in a contagion on an associated aggregate global financial network (i.e., on a monolayer network), as is often examined in other studies. We also study the extent to which buffers can reduce the propagation of financial distress. Our analysis suggests that accounting for both intralayer and interlayer propagation of contagions in a multiplex structure of financial assets is important for understanding interconnected financial systems of countries.

Download Full-text